Rep Cmte Small Business

A small business health insurer broker testified today that Obamacare's Medical Loss Ratio (MLR) regulations has cut his revenues, forced many of his competitors out of business, and may end the small business insurance broker industry entirely.

"This situation is not sustainable for much longer. I have, thus far, been able to hold on, but many thousands of other agents all across the country who are also working under these circumstances have become unemployed or underemployed, or have permanently left the industry," Colorado insurance broker Mitchell West told the House Small Business Committee.

Independent insurance brokers like West help other small businesses find the best deal on health insurance for their workers. "They are providing valuable services to their client, not only in finding more affordable policies, but also serving as external human resource departments for small businesses," Galen Institute President Grace-Marie Turner testified.

Obamacare is regulating these small businesses out of existence by defining the commission they earn in as administrative overhead the purpose of calculating an insurance company’s MLR. Obamacare mandates that insurers in the individual and small group market must spend 80% of their premium dollars on medical costs, not overhead.

When the Department of Health and Human Services issued its regulation classifying independent broker commissions as overhead, West saw his small business revenue immediately collapse: "Effective January 1, 2011, for my practice, which is comprised of over 1,200 active clients, my commission reductions averaged 47 percent on new business and 20 percent on existing business/renewals. One of the carriers in Colorado has stopped paying renewal commissions entirely. ... Using a figure of 35 percent as the composite reduction in my revenues that are attributable directly to MLR on January 1, 2011, the net consequence is a decrease of 50 percent to my bottom line."

The MLR regulations are designed to lower health care costs for small businesses but there is no evidence they will work. Instead, Turner testified, MLR's will probably raise health spending as insurers allow medical costs to rise so they balance out their existing overhead. Where insurance companies do cut administrative costs, anti-fraud and anti-waste measures are likely to suffer.

"Much damage has already been done to tens of thousands of agents and countless consumers nationwide. It would seem, therefore, that the only solution is a legislative one, and it is needed immediately," West said.